December 6, 2014
If you’re familiar with Twitter startup lore, you might remember a little company called Odeo. Back in 2005, Odeo had a tested podcasting platform that would serve as a directory where people could subscribe to and share RSS-syndicated audio files. But the company quickly found itself facing one major hurdle: Apple had just announced plans to enter the podcasting space with a platform to be built into its next generation of iPods. Instead of sinking more money into the original concept, Odeo’s founders decided to pivot and explore a novel idea involving status updates that we now know as Twitter.
Unfortunately, not all startups are as willing to pivot as Odeo. Too many get stuck in a logical fallacy: poor or invalid reasoning that prevents them from seizing opportunities and changing directions when they should.
Here are three logical fallacies entrepreneurs often fall victim to and how to avoid them with an intelligent pivot.
1. The Sunk Cost Fallacy
When Apple moved into the podcasting space, Odeo’s founders had already devoted a great deal of time and money to developing their platform. Logically, they’d spent too much not to see it through, right?
Just because you’ve already spent $1 million on something doesn’t mean another $100,000 is a good investment. You can’t un-spend that money, so what you spent in the past is no longer relevant. What matter are the options that are available now and in the future.
For instance, if you’ve invested time and money in branding your company as a product manufacturer but find you’re better at offering customized solutions and on-demand services, you could make more money as a boutique consultancy firm than a mass-market manufacturer.
Just because you’ve gone down one path doesn’t mean you shouldn’t pivot to become a different kind of company. In fact, pivoting to leverage your strengths could make you more profitable in the long run.
2. The Burden of Proof Fallacy
Some startups get hung up working under the assumption that the burden of proof lies not on the person making the claim but on the other side to disprove it. Then they doggedly pursue a specific market until they run out of money — or, in other words, until the market proves that their concept isn’t going to work.
Unfortunately, even when you know exactly what consumers want in a product or service, the market may not be able to support it.
Let’s say you plan to offer a new delivery service. You design your product to compete against companies like FedEx and UPS. But upon further investigation, you might find the market filled with local trucking companies that already have a solid grip on your target audience with their parcel delivery services. The burden of proof has shifted; you can no longer assume you have superior features. The market is now telling you to assume something different: that the local competitors offer a better service than you do.
If you can’t compete in your current market at any scale, it makes no sense to invest more money. Instead, reset your assumptions and pivot your company, or consider moving to a new location with less competition for market share.
3. The Bandwagon Fallacy
Other startups get stuck when they fall into the bandwagon fallacy. They may pursue an idea that’s popular, thinking that what works for one company will inevitably work for theirs. Unfortunately, this could mean you have a hard time differentiating your offering from your competitors’ products.
Back in 2003, mobile phone companies were responding to what consumers said they wanted: a phone that was smaller and had a longer battery life. But Apple didn’t try to compete by making a smaller phone. Instead, it released a much larger device with an even shorter battery life than those currently on the market.
Of course, consumers loved the iPhone, and Apple taught the tech world an important lesson: The ultimate test for any product or service is the customer’s investment. In a nutshell, if people aren’t buying what you’re selling, you need to try something else.
When building a company, it’s tempting to cling to your original concept like a life raft. But if your product isn’t appealing to customers, isn’t working in the market, or doesn’t take advantage of your unique strengths, you may want to consider a pivot. A course correction today could save your company tomorrow.
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